Mastercard Incorporated

Ladies and gentlemen, thank you for standing by, and welcome to the MasterCard's Q1 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode, and after the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star and then 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I'd now like to hand the conference over to your presenter today, Executive Vice President of Investor Relations, Warren Nishaw. Please go ahead, sir.

Thank you, James. Good morning, everyone, and thank you for joining us for our first quarter 2020 earnings call. We hope you and your families and coworkers are all safe. With me today are Ajay Banga, our Chief Executive Officer, Michael Niebach, our President, and Sachin Mehra, our Chief Financial Officer. Following comments from Ajay, Michael, and Sachin, the operator will announce your opportunity to get into the queue for the Q&A session. It is only then that the queue will open for questions. Due to the length of our prepared comments today, we plan to allow for an additional 15 minutes for questions, if necessary. You can access our earnings release, supplemental performance data, and the slide deck that accompany this call in the investor relations section of our website, MasterCard.com. Additionally, the release was furnished with the SEC earlier this morning. Our comments today regarding our financial results will be on a non-GAAP currency neutral basis unless otherwise noted. Both the release and the slide deck include reconciliations of non-GAAP measures to GAAP reported amounts. Finally, as set forth in more detail in our earnings release, I'd like to remind everyone that today's call will include forward-looking statements regarding MasterCard's future performance. Actual performance could differ materially from these forward-looking statements. Information about the factors that could affect future performance are summarized at the end of our earnings release and in our recent SEC filings. A replay of this call will be posted on our website for 30 days. With that, I'll now turn the call over to our Chief Executive Officer, Ajay Vanga.

Thank you, Warren, and good morning, everybody. Our first quarter started off strong and kind of continuing to build off the solid trends and performance that we had in 2019. But as you all know, as the pandemic developed and spread, it impacted our first quarter performance. But the strength in our services-related revenues shows that the strategy we have pursued over the last decade to diversify our revenue streams is paying off. Now, this virus has created a truly extraordinary challenge that we need to address together. And like everyone else, we are trying to do our part. Of course, the execution of our Grow, Diversify, and Build strategy which builds on the solid foundation of our technology, data, brand, and our wonderful people, has put us in the fortunate position of being able to support our clients and partners throughout this difficult period. And you will hear me and Michael and Sachin talk more about this later. At its core, this is a health crisis, and therefore the public health response is the most important policy response in the near term. It is the critical first step to getting the world's economies back on track. And as we've all been reading, coordinated efforts such as the sustained implementation of social distancing and the scaling of our healthcare capacity to address increasing needs are having a positive effect. Recovery over the mid and longer terms will be dependent on the implementation of successful testing processes and the development of effective prophylactic therapeutics, and vaccines. Now, we are contributing to our investment in a therapeutics accelerator together with the Gates Foundation and Wellcome Trust. In the meantime, fiscal stimulus packages are being introduced across many markets, and this will be a critical effort to provide relief during the downturn for individuals, for small businesses, and for others who are particularly hard hit. We're also seeing very strong efforts on monetary policy across a number of countries, which will be particularly supportive as the recovery takes hold. Ultimately, the shape and speed of the recovery will be determined by the effectiveness of these policy initiatives. But again, in the meantime, we're helping out. We've joined forces with Onward U.S., a coalition of tech partners and foundations that are addressing displaced workers across the United States. Separately, we are providing necessary resources to support the unique needs of small businesses with a commitment of $250 million in technology, product, and insight assets, as well as philanthropic support. So now let me shift gears for a moment to tell you how we are looking at this on the ground. We have spent some time together as a team on developing a framework that really helps the entire company think about the progression through four distinct phases. Containment, stabilization, normalization, and growth. Containment is a mitigation initiative like travel restrictions and social distancing and work from home orders are implemented by public authorities in an effort to bend the curve and contain the growth in new COVID cases. From our perspective, from a payment volume perspective, this phase is characterized by rapid contraction in spending levels. What follows is stabilization. When these mitigation initiatives are by and large complete and spending stabilizes around a new lower level due to mobility limitations with a focus on buying necessities and of course aided by e-commerce. We believe we are currently in the stabilization phase in most markets. The next phase is normalization where governments gradually relax mitigation practices as the environment becomes safer for the citizenry. enabled by the broader availability of testing and tracing and improved therapeutics, even before the rollout of an effective vaccine. This phase, we think, will be characterized by a gradual path to recovery in spending to pre-COVID levels. We anticipate spending will begin to rebound during this phase, but not necessarily evenly. We would expect some sectors, particularly where there is pent-up demand, like home improvement or clothing or health care or domestic and intra-regional travel to normalize earlier. Other areas like mass entertainment and long-haul travel will probably take longer to recover. It's possible that we will see early signs of normalization in some sectors and geographies throughout the rest of this year. And the final phase is growth. where spending levels gradually trend higher than pre-COVID levels. We believe a widely available vaccine and proven therapeutics will help to bring this stage to fruition. So containment, stabilization, normalization, and growth is the framework we are using. It's not necessarily linear, as they've seen in Japan and Singapore recently. And frankly, it's impossible to say how long each phase will last. But we think the framework makes sense. We are running this business with this common lexicon across the company. You will hear us talk about progress in these terms as we move forward. Now bringing all this back to our business, it is clear that our metrics are being impacted. You've seen those. But our business drivers are rooted in more than just PCE trends. The secular shift from cash and check to electronic forms of payment is important, and we expect it to accelerate coming out of this crisis. We have worked hard. to grow a balanced portfolio across credit, debit, prepaid, and commercial payments with a focus on strengthening share in debit and prepaid, which tend to be more resilient in times like this. We've also diversified our business in terms of our customer base and geographies as demonstrated with our presence around the globe. Now, our services lines, a significant portion of which are not linked to transaction levels. They help us to further diversify our revenue stream, and they are very much in demand. All this on a foundation of a strong balance sheet and liquidity, which allows us to execute on our strategy to capture new payment flows and build new capabilities for the long term. Organically, of course, but also importantly, inorganically. The near term will no doubt look different than we expected it to be just three months ago, but they're very well positioned to make the most of these significant opportunities that we see coming our way. So now let me turn to what we're doing to address the situation today. Normally, and like every other time, we are focusing on the things that we can control, both inside our company, but also externally with our customers, governments, and society at large. Let me start with the most important issue, the health and well-being of our employees. Our offices remain open wherever they have been allowed to do so. The vast majority of our employees are working from home. Many people are dealing with new circumstances and unexpected challenges. We are helping our employees in every which way that we can. We are providing them the additional health benefits, paid time off for those in need to care for themselves or their loved ones. We have assured our employees that there will be no COVID-19 related layoffs this year. Our network and systems remain fully operational based on the resilient core infrastructure that we have built and that is regularly tested. We're helping our customers mitigate risk as well. We're engaging with them in scenario planning. They're leveraging AI tools financial institutions and others to help them fortify their business continuity plans as they navigate the downturn to ensure that they can come out strong on the other side. And we're also reaching out beyond our four walls to support governments, much as we've worked over them in the past with an increased focus on their specific needs in light of today's pandemic crisis. We are uniquely positioned to help them provide emergency payments to both people and businesses through our multi-rail solutions. We are facilitating specific COVID-related social disbursement programs around the world, reaching millions of some of the hardest hit people, including in the United States through the Direct Express prepaid program, our account-to-account rails, which enable about 90% of payroll and support. Almost all state benefit payments in the UK are now also being leveraged to support payments to displaced workers, and financial assistance to businesses in that market. And they're involved in work like this in markets as diverse as Israel and Chile. So there's a lot going on. But we're always thinking about what more we can do. So before we move on, let me just say, we will get through this. I have tremendous confidence in the ability of mankind to find innovative solutions in the face of difficult circumstances. And when confidence returns, and it will, we expect the fundamental growth trends that have driven the company will return in force. We have a resilient business model that benefits from diversification, that benefits from our ability to optimize existing products and solutions, and benefits by the fact that we can introduce new value props, all of which contribute to our ability to grow over the longer term. So with that, I'm gonna turn this call over to Michael, who as you know, has all the operating teams reporting to him. And I think I'm very fortunate to have him working side by side with me as we've navigated through this unique time together. So Michael.